Inflation may average at 6.9% in FY23

Mumbai: The average headline inflation is set to accelerate to a nine-year high at 6.9 per cent in FY23, and the Reserve Bank may go for more rate hikes during the fiscal, a domestic ratings agency said on Wednesday.

The RBI will hike rates by another 75 basis points and possibly up to 125 basis points (1.25 percentage point) as well if the turn of events and data are very adverse, India Ratings and Research (Ind-Ra) said in a note.

"The first rate increase by the RBI could be of the order of 0.50 per cent in the June 2022 policy and another 0.25 per cent in the October 2022 policy," the agency said, adding that the cash reserve ratio could also be hiked by another 0.50 per cent to 5 per cent by the end of the fiscal.

In a surprise move, the RBI on May 4 hiked the repo rate at which it lends to the system by 0.40 percentage point, and also the CRR or the percentage of deposits banks have to park with the central bank by 0.50 percentage point in an off-schedule meeting as it saw threats to the inflation target.

The Consumer Price Inflation (CPI) came at 7.8 per cent for April, making it another month where the RBI's upper tolerance band of 6 per cent was missed. All the analysts are sure about more such hikes being in the offing and some dent to growth has a result of the same.

Retail inflation will increase till September 2022 and start declining gradually thereafter, it said, adding that it is expected to remain in excess of 6 per cent for four consecutive quarters starting fourth quarter of FY22 till third quarter of FY23. It can be noted that under its pact with the government, the RBI is mandated to contain inflation inside 6 per cent and the number breaching for three consecutive quarters will lead the central bank to formally explain the reasons for the same.